Question

Which action is most likely to result in an increase in the money supply?

The Fed buys millions of dollars in Treasury bonds.

The required reserve ratio for banks is doubled.

The discount rate on overnight loans is raised.

The unemployment rate is reported to be rising.

Answer 1

When the Fed buys Treasury bonds, it increases the money supply by injecting money into the banking system.

Step-by-step explanation:

The action that is most likely to result in an increase in the money supply is when the Fed buys millions of dollars in Treasury bonds. When the Fed buys these bonds, it injects money into the banking system, increasing the reserves of commercial banks. As a result, banks have more money available to lend, which leads to an increase in the money supply.